Tag Archives: cost-effectiveness

Bonds

There has been a lot of chatter in the last few weeks about social development bonds. Basically, they are financial investments that are spent on social-welfare development which pay-out at a fixed point only if there is good evidence that the social-welfare efforts were successful, and not at all if not.  They are currently being pioneered in England by the group Social Finance.

There are two queries that I have about these bonds.  First is that since they are linked to a cost-benefit measurement before paying out they are really a cross between a bond  and a share.  The bond holder will be expected to take great interest in the service delivery etc to ensure a return, but that is hardly current bond holder practice. Second, can the impact of an intervention be determined reliably and even if it could be how would we determine what is a ‘successful’ project?  There is more mileage in the ‘share’ analogy here since there will be a price-over-earnings consideration that is not normally considered by bond holders.

Which brings me to the question of risk.  If these complex bonds, which have share-like dependency on performance, are to be commercially traded, who is going to take on the additional risk?  To make the bond attractive the interest rate will have to be high, and that additional risk will be paid for by the government when it pays out.  The externalities are positive (successful project) but the whole thing rests on the idea that the benefit from private sector involvement is greater than the additional cost to the government in borrowing.  I am not so sure that this argument is sound.

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Can’t give, won’t give

In the last few years a lot of effort has gone into evaluating the effectiveness of charities. The organization Giving What We Can emphasis that cost-effectiveness in charities is essential:

…even restricted to the field of health programs in developing countries, research shows that some are up to 10,000 times as effective as others.

The site divides charity giving into categories, such as health, education and empowerment.  Within the health section,  the site gives a nice breakdown of disease priorities according to the effectiveness of their treatment (largely based on the DCP2 from the Disease Control Priorities Project), where effectiveness is measured in disability adjusted life years per dollar spent.  All well and good.  However an interesting thing happens when you click on the Emergency Aid section:

It is a very difficult intervention type to assess, because it is so wide-ranging, there is little quantitative data, and because each emergency is unique. At this point in time, we have no information on the cost-effectiveness of different types of emergency aid, but we hope to rectify this in the future.

For a more detailed analysis of an intervention-type, see our pages on health.

For all their work, this charity cannot find any data to estimate the effectiveness of emergency relief.

There is no basis on which to separate emergency and health programs.  Both are concerned with saving lives, they have the same outcome of interest.  Emergency conditions appear differently to us, the giver, but to the patient who is dying the conditions don’t seem that different.  Yes, we see/hear/feel more about emergencies than ‘normal’ health problems and emergencies have a sort of ‘Biblical’ significance, but from the point of view of a child dying of malaria, or the mother of a malnourished baby, I don’t imagine there is a distinction.

What this site and others show, in high contrast, is the peculiar position of humanitarian aid in our thinking.

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